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Baxter is having quite a week. The three-foot robot (six when atop his pedestal), with a video-screen face and versatile arms, made by privately funded Rethink Robotics in Boston, played a starring role on 60 Minutes last Sunday, albeit in a downbeat report on workshop jobs lost to technology. This week he will find a cheerier audience at the giant Automate technology show in Chicago.

Not since Honda's humanoid Asimo rang the New York Stock Exchange bell in 2002 have investors had a clearer call to think about profit opportunities for robot makers. But the news may be better for science-fiction fans than investors, as shares of robot-makers have already run up, and many look expensive.

A second factor is fierce wage inflation in China, which has reduced the advantages to U.S. companies moving jobs there. In fact, many are moving jobs back home -- and taking the opportunity to keep costs down by automating their production lines by using robots.

The third, and still emerging, factor is a vast expansion in the number of jobs robots can do at reasonable cost. The rise of smartphones has brought rapid gains in optics technology while pushing down prices for computing power. Better vision will increasingly allow robots to tackle jobs that involve bin-sorting, or selecting the parts they need from a jumbled pile, rather than be handed parts by humans.

Lower costs mean, for example, that Baxter costs $27,000 fully loaded. Think of that as $4.32 an hour over its three-year warranty period, considerably less than the federal minimum wage of $7.25, and it should be useful well beyond the warranty period, says Scott Eckert, chief executive at Rethink. "Co-bots" like Baxter are designed to work alongside humans, and can be programmed quickly for simple, repetitive manufacturing tasks. Typical jobs include swapping molds at a candle factory and packing bagged salads into boxes.

Worldwide robot sales should increase 11% a year through 2016 -- faster than the pace of manufacturing growth, predicts Freedonia, a market researcher. Much of that growth will be driven by small and midsize manufacturers that couldn't previously justify the cost of robots. Baxter will have plenty of competition. Privately held Universal Robots in Denmark makes robotic arms that are "better than Baxter," in the view of Frank Tobe, publisher of The Robot Report. And the old-line robot makers aren't sitting idle. KUKA and ABB have their own co-bots. Tobe counts more than 1,000 robot makers worldwide.

Not everyone is convinced that the rise of co-bots will be a rapid one. "It's an interesting concept, but for now the models are too slow and not strong enough," says Hans de Koning, president of Richmond, Va.-based Flexicell, which installs industrial robots for the food-packaging industry.

THE BEST OPPORTUNITIES FOR STOCK BUYERS now include Kuka and ABB, and Milwaukee-based
Rockwell AutomationROK 1.013734466971877%Rockwell Automation Corp.U.S.: NYSEUSD139.005
1.3951.013734466971877%
/Date(1481301120090-0600)/
Volume (Delayed 15m)
:
66876
P/E Ratio
24.865350089766608Market Cap
17645593305.8038
Dividend Yield
2.1949458483754514% Rev. per Employee
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(ROK), which overhauls factories to make them more efficient. KUKA, Europe's largest robot maker, is growing faster than either Fanuc or Yaskawa -- revenues rose 33% over the past quarter -- and it trades at a more reasonable 16 times earnings. It recently created a sales hub in China, which is expected to be a key robot buyer over the coming decade, as it seeks to remain competitive amid rising wages and a push to manufacture more high-quality goods. KUKA has long specialized in car-making, but expects future growth to come from general industry and service robots.

ABB, the second-largest robotics player in Europe, is the cheapest of the big four, at 14 times 2013 earnings. But less than half of its revenue comes from either robotic systems or factory automation; the rest comes from power systems and products. It's seeing strong growth in the Americas, including the U.S., Canada, and Brazil, but declines in Europe, resulting in 4% overall sales growth last quarter. Analysts expect steady sales growth and cash flow through 2016. Shares come with a 3.3% dividend.

Rockwell Automation isn't a direct investment in robots, but it stands to profit from the expanding use of them. Historically, Rockwell has specialized in automating individual jobs -- say, putting bottles of beer into boxes. Today, it integrates many jobs -- bottling beer, controlling batch quality and so on -- into networked systems that can be monitored from a computer.

"It's the best pure-play automation company," says Shannon O'Callaghan, who covers the industry for investment bank Nomura. A contractor like Flexicell's de Koning, who buys a robot from Fanuc, would use Rockwell to supply motor-control devices and other products, to put the robot to work. Shares go for 16 times projected earnings of $5.57 for Rockwell's current fiscal year, which runs through September. The dividend yield is 2.1%. Over the past year, management has spent about as much on share repurchases as on dividends.

The Robotic Hand of the Market

Sales, profits, and share prices have all risen for the biggest industrial-robot companies. There are few bargains left.

Larger outfits are flourishing, but some of them, too, have pricey shares. Fanuc goes for 22 times 2013 earnings, and Yaskawa, 19 times. As promising as the future may be for robot makers, they are ultimately industrial companies, which means if economic growth slows, their profits and share prices can quickly contract.

OF COURSE, RISING USE OF ROBOTS over the coming decade may create new and different problems for stock investors if they supplant workers and depress wages, reducing the amount of goods and services consumers can afford.

The industry sees those fears as overblown. Casey Nobile, editor of Robotics Business Review, points to the sudden decline of the more than 200,000 workers employed as elevator operators in Manhattan in 1958. Robots now do those jobs, but the elevator business has $25 billion in yearly sales and pays skilled workers an average of $33 an hour.

That view may be optimistic, but China's factory workers have more to fear from robots than do their American counterparts. China's manufacturing rise has been based on its labor-cost advantages, which are disappearing. As robots further close the gap, they may manufacture a return of lost jobs to the U.S.